Body Corporate 85659 v Young
[2017] NZHC 1370
•21 June 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2016-485-579 [2017] NZHC 1370
UNDER the Unit Titles Act 2010 IN THE MATTER
of the recovery of unpaid levies
BETWEEN
BODY CORPORATE 85659
PlaintiffAND
LESLIE YOUNG AND SUZANNE LEE YOUNG Defendants
Hearing: 8 February 2017 Appearances:
A Knowsley and D Hunt for the plaintiff
F B Collins for the defendantsJudgment:
21 June 2017
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The plaintiff (the Body Corporate) has applied for summary judgment on its claim for unpaid levies in respect of 10 residential units owned by Dr and Mrs Young in a unit title development located at 219 Willis Street, Wellington, known as Richard Pearse House (the development).
[2] Dr and Mrs Young filed a notice of opposition to the summary judgment application. In addition, they have filed an application for an order directing that the Body Corporate’s current solicitors, Rainey Collins, may not act any further in the proceeding (the representation application). I now give judgment on the representation application.
[3] The development was completed in 1998, when 100 new unit titles were created. There are four commercial retail units on the ground floor, 24 residential
BODY CORPORATE 85659 v YOUNG [2017] NZHC 1370 [21 June 2017]
units on levels one and two, and 72 residential units on levels three to eight. Dr and
Mrs Young’s 10 units are located on levels one and two.
[4] The ground floor commercial/retail units have very large windows, and the exterior of these units are overhung by a concrete verandah. The units on levels one and two have small windows, inset into and sheltered by concrete walls. The exterior of levels three to eight are principally glass, with the cladding and the windows exposed to the elements.
[5] The dispute arises out of the Body Corporate’s levies relating to the cost of replacing the steel frame windows on levels three to eight with new aluminium joinery and double glazing. Dr and Mrs Young contend that the owners on level three to eight will obtain far greater benefit from the new window frames and double glazing of their units than they will, and that levying Dr and Mrs Young based on their utility interests in their 10 units on levels one and two is not equitable. As Dr Young put it in his affidavit, “it is unfair to ask us to subsidise and/or provide an interest-free loan to the owners of level three to eight who are the only owners in the building who have received any substantial benefit from this work”.
[6] Dr and Mrs Young have filed an affidavit by a registered valuer, Mr Truebridge, comparing the relative benefits from the work obtained by the owners on levels three to eight, and the owners on levels one and two.
[7] In the representation application, Dr and Mrs Young contend that Rainey Collins’ independence is compromised, because its advice is in issue in the proceeding and/or a staff member may need to give evidence of a contentious nature in the proceeding. They also say that certain advice given by Rainey Collins regarding the preparation of resolutions for an Extraordinary General Meeting (EGM) held on 17 December 2015 is advice that will be in issue in the proceeding. They contend that that fact precludes Rainey Collins from representing the Body Corporate in the proceeding.
[8] Dr and Mrs Young rely on rules 13.5 and 13.6 of the Lawyers and
Conveyancers Act (Lawyers: Conduct And Client Care) Rules 2008, and the
principles expressed in the case of Guardian Retail Holdings Ltd v Buddle Findlay and Others.1
[9] The representation application is opposed by the Body Corporate. It says that Dr and Mrs Young have failed to establish that Rainey Collins’ independence in the proceeding is compromised, and/or that the firm’s advice will be in issue in the proceeding, and/or that a staff member will need to give evidence of a contentious nature regarding the matters identified by Dr and Mrs Young. The Body Corporate also says that the application fails to state grounds which would justify any interference with its right to appoint counsel of its choice.
Background
[10] At its annual general meetings (“AGMs”) in each of the years 2007–2015, the Body Corporate raised levies for the window replacement work on levels one to eight. All unit owners were levied for the work in those years, with the exception of the owners of the ground floor commercial/retail units.
[11] Dr and Mrs Young challenged the levies fairly early in the piece, and the Body Corporate responded by filing a claim against them in the Tenancy Tribunal. The Body Corporate claimed a total of $47,592.03 for the levies which were then said to be due and owing. By order made on 6 September 2013, the Tenancy Tribunal upheld the Body Corporate’s claim, declaring that the levies imposed on Dr and Mrs Young were valid.2
[12] Dr and Mrs Young appealed to the District Court against that decision, and in a judgment given by Judge Kelly on 9 June 2014 the court concluded that the Tenancy Tribunal did not have jurisdiction to make the order it had made.3 That conclusion was based on s 171 of the Unit Titles Act 2010 (the 2010 Act), which limits the Tenancy Tribunal’s jurisdiction to hear and determine claims arising under
any unit title dispute to the sum of $50,000. Section 171(9) of the 2010 Act also
1 Guardian Retail Holdings Ltd v Buddle Findlay and Others [2013] NZHC 1582.
2 Body Corporate 85659 v Young NZTT 12/23/UT, 6 September 2013.
3 Young v Body Corporate 85659 DC Wellington CIV-2014-085-0018, 9 June 2014.
provides that a cause of action must not be divided into two or more claims for the purpose of bringing it within the jurisdiction of the Tenancy Tribunal.
[13] Judge J M Kelly noted that it appeared that an agreement had been reached to limit the claim to unpaid levies in respect of seven of the ten units owned by Dr and Mrs Young, thus reducing the claim to $47,592.03 (a sum within the Tribunal’s jurisdiction). The Adjudicator in the Tenancy Tribunal said he would treat the claim as a “test case” in respect of one unit only, and if necessary he would amend the application so that it consisted of a claim for $6,819.81 in respect of that unit. But that is not what in fact happened — the declaration made by the Adjudicator appeared to encompass all of the unpaid levies owing by Dr and Mrs Young in respect of the seven units.
[14] Judge Kelly considered that the claim was properly a claim for unpaid levies for all units owned by Dr and Mrs Young, and that the amount claimed for all units exceeded the Tribunal’s jurisdiction. She accordingly made an order quashing the Tribunal’s decision.
[15] Unfortunately, the parties have not since been able to resolve the matter.
[16] The question of proceeding further against Dr and Mrs Young was considered at the Body Corporate’s AGM on 27 August 2014.
[17] In a report prepared for that meeting, the Body Corporate Chairman, Mr Taylor, noted that YPN (the company providing secretarial services to the Body Corporate) would provide an update on the unpaid levies and the Tenancy Tribunal proceeding. Mr Taylor noted that the unpaid levies were well in excess of $100,000, and that was impacting on the Body Corporate’s ability to attend to a number of matters, including some priority items. Mr Taylor noted that provision for legal fees to assist in pursuing the payment of the outstanding levies had been made in the draft annual budget.
[18] Dr and Mrs Young, who reside in the United Kingdom, did not attend the
AGM on 27 August 2014.
[19] The minutes of the 27 August 2014 AGM record the following under the
heading “Debtors”:
Geoff [Holgate, of YPM] then updated the meeting on the outstanding levies of the Young’s units.
The current position is that the Young’s application to appeal the Tenancy Tribunal’s decision resulted in the District Court quashing the Tenancy Tribunal’s ruling that was in favour of the Body Corporate’s application to have the Young’s pay their levies in full. The District Court did not rehear the case nor handle an appeal, effectively setting the process back to square one after three years. The Judge strongly recommended the Youngs and the Body Corporate communicate to try and reach an agreement.
[One of the unit owners present at the meeting] noted her husband’s legal advice was to not go back to the Tenancy Tribunal but to get legal advice on the best way forward and gave recommendation of a suitable law firm.
Geoff concurred and tabled an estimate from the law firm Rainey Collins to review the file, communicate with the Young’s lawyer to attempt a non- litigious resolution and to file the case with the District Court through to attending a hearing. The estimate was in the form of range of between
$13,000–$26,000 plus GST.
Geoff then read to the meeting the following submission from [the defendant
Dr Young] and [unit owner] Mr Patel:
…
The meeting agreed that the Body Corporate proceed with a legal review of the file and recommendation on the way forward. Once received this will be communicated to the Youngs and [Mr Patel].
Moved: To assist with the cost of this the budget line Miscellaneous will be reduced to $1,000 and the Legal budget line will be increased to $26,000 plus GST.
… carried.
The Committee was authorised to proceed if the legal review recommended filing the matter with the District Court and attending a hearing and if the matter was unable to be resolved outside litigation.
[20] The question of recovery of the levies was referred to Rainey Collins, and they provided a letter of advice on 24 November 2014.
[21] Rainey Collins’ letter of 24 November 2014 identified three options for the Body Corporate to consider. They were litigation, negotiation, and mediation. In their executive summary, they expressed the view that, although Dr and Mrs Young’s grounds of defence were not entirely without merit, their arguments could be
“robustly opposed by the Body Corporate”. Rainey Collins proceeded to set out their assessment of both the claim and the defence, referring to the views expressed by the Adjudicator in the Tenancy Tribunal, and to certain provisions in the Unit Titles Act 1972 (the 1972 Act). They concluded that the reasoning of the Tenancy Tribunal could be relied upon, and that it favoured the levies being payable, with interest and costs.
[22] Rainey Collins described a number of the Youngs’ arguments as unconvincing, or able to be rebutted. In a section of the claim headed “Litigation – going to Court”, they noted that the Body Corporate “appears to have a valid claim for unpaid levies, interest, and recovery costs”. However they went on to refer to litigation risk, and the time and costs involved with litigation. They noted that legal costs might escalate.
[23] Rainey Collins expressed a preference for a “negotiated solution” as the preferable outcome. They asked the Body Corporate to let them know how it wished to proceed.
[24] There appears to have been some delay from that point, and it was not until
20 April 2015 that Mr Holgate wrote on behalf of the Body Corporate to Dr Young. Mr Holgate advised that from the Body Corporate’s perspective, having won in the Tenancy Tribunal on the merits (and having been overturned on a technicality), it was now up to Dr and Mrs Young to present the Body Corporate with a counter- proposal that the committee chair could evaluate for presentation to the members at a general meeting. Mr Holgate’s email suggested that such a counter-proposal would be the subject of a vote by majority decision.
[25] Dr Young did prepare a detailed proposal. It was dated 18 May 2015, and it included a proposed decision mechanism and a cost allocation which was said to be consistent with s 126 of the 2010 Act (taking account of the different engineering required for repairing the windows of the units on the upper floors versus the lower floors). The proposal also addressed various issues raised by Rainey Collins in their letter of 24 November 2014.
[26] It appears that the Body Corporate never responded to the draft proposal from Dr Young. In any event, no evaluation of it was included in the documents sent out to owners for the AGM convened on 17 September 2015.
[27] Neither of the Youngs attended the AGM on 17 September 2015.
[28] The minutes of the September AGM recorded the following in respect of
“Debtors”:
The meeting was advised that, in line with the advice from Rainey Collins lawyers, the matter of the outstanding levies with the Young’s units, unless paid, will be filed with the District Court for full payment. This is on the basis that [the 2010 Act] requires all levies properly struck to be paid in full. Only after the works are completed does [the 2010 Act] allow for discussion on alternative ways of apportioning the costs according to relative benefit from the works.
[29] The Young’s solicitors wrote to Rainey Collins on 18 September 2015, raising a number of objections to the Body Corporate’s stated intention to file a claim against the Youngs in the District Court. First, they noted that the Body Corporate’s position appeared to be predicated on an assumption that it was entitled to collect levies first and argue later over whether an adjustment under s 126
of the 2010 Act should be made.4 The Youngs solicitors contended that this alleged
“pay now, argue later” regime was not supported by authority.5 They asked Rainey Collins to identify any reasoning justifying the view that levies must be collected before an adjustment can be made under s 126 of the 2010 Act. The Youngs’
solicitors noted that there is no mention in the 2010 Act as to whether s 1216 (on
4 Section 126 of the 2010 Act is generally concerned with money expended for repairs and other work. It specifies that when a body corporate does repair work that substantially benefits only one unit or only a group of units, or benefits some units substantially more than it benefits others, then the expense incurred is recoverable by the body corporate as a debt from the owners of those units that received the substantial benefit.
5 Referring to Tisch v Body Corporate 318596 [2011] NZCA 420, [2011] 3 NZLR 679.
6 Section 121 of the Unit Titles Act 2010 provides:
121 Contributions to be levied on unit owners
(1) A body corporate may determine from time to time the amounts to be raised for each fund and impose levies on the owners of principal units to establish and maintain each fund.
(2) The levies must be calculated as follows:
(a) in the case of the operating account, long-term maintenance fund, and any contingency fund, in proportion to each unit owner’s utility interest; and
which the Body Corporate relies) prevails over s 126 (on which the Youngs rely). The Youngs’ solicitors made it clear that their clients would seek relief under s 126 in response to any enforcement action. They expressed the view that it was inevitable that the court would consider the fairness of the levies, especially where there was common ground that the levies were substantially for the benefit of the upper floor units.
[30] The Youngs’ solicitors invited the Body Corporate to submit a counter- proposal, bearing in mind that the parties were likely to incur significant legal expenses and management time going to court. They suggested that the letter of demand was premature, and contended that the Body Corporate had failed to respond to Dr Young’s constructive attempts at a sensible resolution. They attached to their letter a copy of Dr Young’s proposal dated 18 May 2015.
[31] Rainey Collins replied on 7 October 2015. They confirmed that the Body Corporate was seeking to recover the levies under s 121 of the 2010 Act. They referred to s 124(2) of the 2010 Act in support of the proposition that the levies were recoverable as a debt due to the Body Corporate.
[32] The Body Corporate’s position in the correspondence was that, whether or not s 126 of the 2010 Act provides a body corporate with a discretionary power, it can only have application once work has been done, and the expense has been incurred by the body corporate. Section 126 provides no mechanism for raising levies (unlike s 121), nor does it provide for a body corporate to recover money levied but not yet spent (s 124). They argued that the sole function of s 126 is to
enable a body corporate to apportion and recover actual money spent, where it would
(b) in the case of any capital improvement fund, in proportion to each unit
owner’s ownership interest.
(3) The owner of a future development unit is liable to pay contributions levied by the body corporate under this section from the date that the future development unit is first in use as a place of residence or business or otherwise and from that date that future development unit is to be treated as a principal unit for the purposes of this section.
(4) Any levies imposed by a subsidiary body corporate must be sufficient to pay any levies raised under subsection (1) by the head body corporate, its parent body corporate, or any other parent body corporate located between the subsidiary body corporate and its head body corporate.
be unfair for the default provisions of the 2010 Act to be enforced when apportioning the actual expenses between the owners.
[33] On that basis, Rainey Collins expressed the view that the Body Corporate would be acting ultra vires, and would be susceptible to legal action by all unit owners, if it were to adjust its method of raising levies and purport to instead raise levies calculated on the basis of s 126. They maintained their contention that ss 121 and 126 of the 2010 Act constitute a “pay now, argue later” regime, in the context of paying levies now, and arguing about money actually spent later. They expressed the view that the Body Corporate had no power to settle on the basis Dr Young had put forward, and that it was obliged under the 2010 Act to require that the full amount of levies be paid in the absence of a court-settled s 74 scheme to the contrary.
[34] As for the suggestion that the Body Corporate had failed to respond to constructive attempts at resolution made by Dr Young, Rainey Collins noted Dr Young’s statement set out in his proposal of 18 May 2015 that he would “not significantly depart from his position”. Dr Young also stated in that proposal that he would not engage in mediation.
[35] Rainey Collins advised in their letter of 7 October 2015 that, if full payment was not received within five working days, they had instruction to file proceedings for recovery.
[36] The Youngs’ solicitors replied by letter dated 14 October 2015. They rejected Rainey Collins’ views that the Body Corporate had no power to settle on the basis put forward by Dr and Mrs Young and that it was obliged under the 2010 Act to require full payment of the levies. They enquired if the Body Corporate would be willing to mediate the fairness of the levies, or whether its position was that the levies had to be paid in full before it would engage in a discussion of a fairer cost allocation. The Youngs’ solicitors advised that their clients would be willing to attend mediation, but if a mediation was to be successful there would need to be meaningful engagement from the Body Corporate. They proposed the name of a well-known commercial mediator, and advised that the Youngs would be prepared to undertake mediation in the first three weeks of February 2016.
[37] The Body Corporate convened an EGM on 17 December 2015. It is apparent from the agenda that an issue had been identified over the validity of the various resolutions passed between 2007 and 2014 raising levies for the repair works. The agenda noted the following:
The purpose of the proposed levy and ongoing levy schedule change is to bring the levy regime into line with [the 2010 Act].
At the beginning of the window project, the window levy has only been levied against the level one to eight units. At previous General Meetings it was agreed that the ground floor commercial units would pay for their own window replacement when that was required. As this decision was unanimous there were no issues.
Now the Body Corporate is in the position of having to chase unpaid levies in the District Court. Therefore the arrangement for the commercial units has to be reversed so that there can be no challenge of the legitimacy of the way in which the levies have been apportioned.
[38] It will be seen that the agenda appeared to acknowledge that the owners of the ground floor commercial units, who had not been called upon in the earlier resolutions to contribute to the level three to eight window repair work, should have been required to contribute, and that there was a concern over the validity of the earlier resolutions.
[39] The agenda advised that the Body Corporate proposed to levy the owners of the ground floor units, according to their respective Utility Interest shares, an increased amount to cover the additional cost of replacement of the ground floor windows. Ordinary resolutions were proposed that $77,829 be allocated for the ground floor windows replacement, and that the budget approved at the 2015 AGM be recast to add the cost of replacement of the ground floor windows in the levy.
[40] Those resolutions were carried without discussion at the EGM on
17 December 2015.
[41] The Body Corporate’s claim against Dr and Mrs Young was discussed at the EGM. The minutes record Mr Holgate’s advice that, as the matters regarding the claim had become legally complex, the committee agreed to all matters being handled by Rainey Collins.
[42] Neither Dr Young nor Mrs Young was present at the EGM, and they did not submit proxy votes. Another unit owner had apparently been asked to represent them, but he arrived after the meeting had closed. The minutes record that this unit owner said that he had been instructed by Dr Young to vote against the resolutions, and that he too would have voted against them.
[43] The EGM minutes record that Mr Holgate referred to an email Dr Young had sent on the morning of the EGM. The email and attached letters were said to be complex, and there had been no time for the chair to get advice on whether they should be tabled at the EGM. The chair then advised the meeting that the circulation of Dr Young’s email and attachment with the EGM minutes would be dependent on the advice of the Body Corporate’s lawyer.
When may a court restrain a party’s solicitors from acting further in a proceeding?
[44] The legal position was helpfully summarised by Courtney J in Guardian
Retail Holdings Ltd v Buddle Findlay & Ors, as follows:7
[27] It is within the inherent jurisdiction of this Court to restrain a counsel from acting if the interests of justice so require. The Court’s concern is with the efficient and effective administration of justice and the need to ensure public confidence in the judicial system. A conflict of interest that prevents counsel discharging his or her professional obligations to the client undermines this purpose and may result in counsel’s removal. In this regard the professional obligations imposed by the Conduct and Client Care Rules will usually be relevant in considering whether counsel should be restrained from acting.8 Compliance with these rules is required by s
4 of the Lawyers and Conveyancers Act 2006.
[28] Rule 6 of the Conduct and Client Care Rules relevantly provides that:
6.1A lawyer must not act for more than one client on a matter in circumstances where there is more than negligible risk that the lawyer may be unable to discharge the obligations owed to one or more of the clients.
6.1.1.Subject to the above a lawyer may act for more than 1 party in respect of the same transaction or matter where the prior informed consent of all parties concerned is obtained.
7 Guardian Retail Holdings Ltd v Buddle Findlay & Ors, above n 1.
8 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.
[29] Rule 1.2 defines informed consent as:
Consent given by the client after the matter in respect of which the consent is sought and the material risks of and alternatives to the proposed course of action have been explained to the client and the lawyer believes on reasonable grounds, that the client understands the issues involved.
[30] Further, counsel may be restrained from acting where counsel’s advice becomes an issue in the proceeding in a way that compromises his or her independence, a point considered by Thomas J in Kooky Garments v Charlton:9
Where the acts or omissions of the law firm, including situations where the actions of the client are based on advice given by the solicitors, are at the heart of the question in issue, the firm is, in a real sense, “defending” its actions or advice. There is, in such circumstances, a danger that the client will not be represented with the objectivity and independence which the client is entitled to and which the Court demands. There is no sound reason to presume or accept that the solicitors must first have the opportunity to clarify whether their client is liable as a result of their actions or of acting on their advice before confronting the conflict.
What I have said, of course, does not apply when the advice given is unrelated to liability or the question in dispute. Advising a client to prosecute or defend a claim does not attract these observations. They are restricted to the situation where the acts or omissions of the solicitors are an integral part of the other party’s complaint or the client has been sued in circumstances where he or she was acting on the advice of their solicitors and it is effectively that advice which is in issue. In such cases, apart altogether from the position of the client, the Court is not receiving the assistance of counsel who are observably independent. Independence is a function of counsel. The Court is entitled to assume that solicitors and counsel appearing before it possess that independence. Solicitors not only owe a duty to their client to do the best for them but also an overriding duty to the Court. The same overriding duty is owed by counsel who have been granted a right of audience to appear in this Court. As part of their professional responsibility, therefore, solicitors and counsel must ensure that they do not appear in a matter in which they have an actual or potential conflict of interest or where, by reason of their relationship with their client, their professional independence can be called into question…
[31] This aspect is now the subject of r 13 of the Conduct and Client Care
Rules, which relevantly provides that:
13.The overriding duty of a lawyer acting in litigation is to the court concerned. Subject to this, the lawyer has a duty to act in the best interests of his or her client without regard to the personal interests of the lawyer.
9 Kooky Garments v Charlton [1994] 1 NZLR 587 (HC) at 590.
13.5.3 A lawyer must not act in a proceeding if the conduct or advice of the lawyer or another member of the lawyer’s practice is in issue in the matter before the court …
…
13.6A lawyer or lawyers who are members of the same practice must not act in a dispute for two or more parties whose interests are not the same or where the lawyer or practice will be unable to ensure the discharge of any duty owed to any party to the dispute.
[32] Finally, care is required to ensure that parties are not deprived of their choice of counsel without good reason.10 The Court needs to be alert to the risk of applications to restrain counsel being used tactically and unfairly imposing on parties the expense of engaging alternative counsel.11
[45] More recently, the Court of Appeal noted in Burgess v Malley & Co that the threshold for removal of a party’s chosen representative is a high one, and that the court will not countenance such applications being used for tactical or delaying reasons.12
The issues on the representation application
[46] Mr Collins raises the following issues:
(1)Is Rainey Collins precluded from representing the Body Corporate in circumstances where it omitted to act in accordance with a resolution of the Body Corporate asking it to negotiate with Dr and Mrs Young?
(2)Has Rainey Collins’ independence been compromised by a factual dispute about whether committee members acted in good faith in filing the proceeding?
(3)Can Rainey Collins act for the Body Corporate in the absence of a valid resolution authorising the current litigation?
10 Black v Taylor [1993] 3 NZLR 403 (CA) at 409.
11 Accent Management Ltd v Commissioner of Inland Revenue [2013] NZCA 155 at [32],
Clear Communications v Telecom Corporation of New Zealand (1999) 14 PRNZ 477 (HC).
12 Burgess v Malley & Co [2016] NZCA 585 at [9].
(4)Is Rainey Collins in a compromised position due to earlier resolutions being ultra vires, resulting in an unresolved conflict between the committee and the Body Corporate?
[47] I will address each issue in turn.
Issue 1: Is Rainey Collins precluded from representing the Body Corporate in circumstances where it omitted to act in accordance with a resolution of the Body Corporate asking it to negotiate with Dr and Mrs Young?
The parties’ submissions
[48] Mr Collins relies on a decision made by the Body Corporate at the AGM on
27 August 2014, at which members agreed that the Body Corporate was to proceed with a legal review of the file and a recommendation on the way forward. That review and recommendation was to be provided to the Youngs. The committee was authorised to proceed if the legal review recommended filing the matter with the District Court and attending a hearing, and if the matter was unable to be resolved outside litigation.
[49] Mr Collins submits that the Body Corporate’s refusal to accept Dr Young’s offer of mediation made in his solicitor’s letter of 14 October 2015 was unusual and at odds with the August 2014 AGM resolution. He submits that Rainey Collins “will be in a very difficult position when asked why it did not attempt to resolve the disputed levies outside of litigation despite express instructions to do so in the 2014
AGM resolution, and especially in circumstances where [the Youngs] offered
[to attend] mediation.”
[50] For the Body Corporate, Mr Knowsley submits that the 2014 AGM resolution did not contain express instructions to the committee to resolve the dispute outside of litigation. Rather, it authorised the committee to proceed with litigation if the dispute could not be resolved outside of litigation.
[51] Mr Knowsley further submits that the Body Corporate was under no obligation to accept the Youngs’ offer of mediation, especially in circumstances where Dr Young had previously asserted that he would not accept mediation. He
submits that the Body Corporate had little reason to believe that the Youngs would genuinely engage with the proposed mediation.
Discussion and conclusions on issue 1
[52] I do not think there is anything in this to raise any question of Rainey Collins continuing to act for the Body Corporate.
[53] At the 2014 AGM the committee was authorised to proceed with the legal review and obtain recommendations on the way forward. If the legal review recommended filing with the District Court and attending a hearing, the committee was authorised to proceed accordingly, provided the matter was unable to be resolved outside litigation.
[54] Rainey Collins set out a number of options for the Body Corporate to consider in their letter of 24 November 2014. While at that stage they expressed a preference for a “negotiated solution” as the “preferable outcome” they asked the Body Corporate to let them know how it wished to proceed.
[55] I do not think Rainey Collins’ legal review was necessarily concluded with its letter of 24 November 2014. Indeed, it seems clear that the review was ongoing, and that by the time of the September 2015 AGM Rainey Collins had advised that recovery of the unpaid levies should be pursued in the District Court (by then, it appears that Rainey Collins had come to the view that the Body Corporate was entitled to demand payment of the levies in full, before entering into any discussion
with Dr and Mrs Young as to the allocation of the levies between unit owners13).
[56] It appears that this recommendation was Rainey Collins’ final
recommendation, and it was incorporated in the minutes of the September 2015
AGM which would have been sent to Dr and Mrs Young.
[57] Subject to the question of whether the dispute was capable of being resolved outside of litigation, then, it appears that the committee was authorised to proceed
13 See the passage from the minutes of the September 2015 AGM at para [28] of this judgment.
with the litigation, and to attend a hearing if necessary, because the legal review (as completed) did recommend that course.
[58] Nor do I consider that the additional requirement (“... and if the matter was unable to be resolved outside litigation”) precluded Rainey Collins from accepting instruction to commence the proceeding. Rainey Collins appears to have eventually come to the view that Dr and Mrs Young could have no defence to the Body Corporate’s claim, and that the Body Corporate itself was limited in its ability to settle the claim. I am not here concerned with the correctness or otherwise of that advice. The point is that once that view had been formed (as it apparently had), and it was clear that Dr and Mrs Young would not pay the full amount of the levies, it was clearly open to the committee and Rainey Collins to conclude that “the matter was unable to be resolved outside litigation”.
[59] Dr Young’s proposal dated 18 May 2015 did not clearly ask for a negotiated resolution. Dr Young said he was “open to negotiation on details of [his] proposal… before submitting it to a Body Corp vote” but at the same time it was “unlikely that [he] would accept major changes”. Dr and Mrs Young were apparently not then interested in mediation: Dr Young said in his proposal that he would be more willing to “take my case before [a] qualified judge”. While the Youngs later indicated through their solicitors (on 14 October 2015) that they would be willing to mediate, it appears that what they were then prepared to discuss was the fairness of the levies. Given the “pay now argue later” advice the Body Corporate had by then received, and the Youngs’ resolute opposition to that course, I do not think it reasonably arguable for the Youngs that Rainey Collins should have declined to act in the proceeding because it was aware (if it was) of that part of the resolution which made commencement of the proceeding conditional on the matter being “unable to be resolved outside litigation”. The Body Corporate members who voted at the August 2014 AGM could not have intended that the committee should refrain from commencing a court claim in circumstances where further discussion with the Youngs appeared to be pointless.
[60] It is true that the authority given to the committee was to proceed with the claim in the District Court. However I do not think anything turns on that. In Body Corporate 198900 Limited v Bhana Investments Limited Toogood J stated: 14
It is not the role of a court to submit the resolutions of a body corporate to a pedantic or overly critical analysis and, given that such decisions are often made by non-professional people and committees of volunteers, it is unrealistic to expect the same precision of language as one might expect, for example, in a commercial contract.
[61] In this case, it seems to me that the reference in the Body Corporate minutes to the District Court was very probably intended only to differentiate the proposed proceeding from the kind of claim which had earlier been commenced, namely the claim in the Tenancy Tribunal. And if the advice from Rainey Collins was that the proceeding would be more efficiently pursued by filing in this court, I do not consider the committee was obliged to call another EGM, or wait for the next AGM, to obtain members’ approval of an express recommendation to file in this court.
[62] I conclude that it has not been made out, to the standard which would have been required for the court to direct Rainey Collins to stand aside as the Body Corporate’s solicitors, that they ought not to have commenced the proceeding because of any failure to comply with the Body Corporate resolution of
27 August 2014 which called for negotiation with Dr and Mrs Young. [63] For those reasons, I find for the Body Corporate on issue 1.
Issue 2: Has Rainey Collins’ independence been compromised by a factual dispute about whether committee members acted in good faith in filing the proceeding?
The parties’ submissions
[64] For Dr and Mrs Young, Mr Collins submits that it appears that Rainey Collins’ advice given in its letter of 24 November 2014 was rejected by the committee. If that is in fact what happened, he raises the question of whether the committee members were acting in bad faith. He submits that this is a factual issue
which is likely to require cross-examination of the solicitors involved if the matter is
14 Body Corporate 198900 Limited v Bhana Investments Limited [2015] NZHC 1620 at [80].
to proceed to trial, because they will be questioned as to why the Body Corporate committee members chose to ignore Rainey Collins’ recommendation.
[65] Mr Collins raises the prospect of Body Corporate committee members being sued by Dr and Mrs Young for bad faith. If that occurs it is likely that the committee members will say they were acting on the advice of Rainey Collins. He submits that it is therefore likely that a staff member of Rainey Collins will be required to give evidence.
[66] Mr Collins further submits that Rainey Collins may have altered its recommendation to negotiate, but there is no evidence currently available which sets out why the committee members ignored the 2014 AGM resolution to negotiate, or why the Youngs’ later offer to mediate was ignored. There is no evidence of any new resolution put to the Body Corporate to proceed directly to litigation. Nor is there any evidence on why Dr Young’s written proposal of 18 May 2015 was never put to the Body Corporate for consideration.
[67] Mr Collins submits that if there was a change in the recommendation to negotiate the committee members should have gone back to the Body Corporate, because at that point the committee’s authority was still circumscribed by the 2014 resolution, which required negotiation.
[68] For the Body Corporate, Mr Knowsley submits that the matters raised for Dr and Mrs Young are entirely hypothetical. They have failed to provide any evidence that such issues do exist, and that they would require the cross-examination of a member or employee of Rainey Collins. He submits that Rainey Collins’
24 November 2014 letter set out a number of options, which included both negotiation and litigation. There were attempts at negotiating a resolution, but they were unsuccessful and the Body Corporate subsequently instructed Rainey Collins to commence litigation.
[69] Mr Knowsley further submits that Dr and Mrs Young are in effect implying that because the committee ultimately chose to commence litigation against them,
this must have been done in bad faith. He submits that there is no evidence of any such bad faith.
[70] Mr Knowsley submits that Dr Young’s proposal is not relevant to the representation application. The proposal was concerned with the apportionment of the disputed levies, and it can be addressed at the hearing of the substantive claim.
Discussion and conclusions on issue 2
[71] First, it will be apparent from my conclusions on issue 1 that I do not consider there is any evidence establishing, to the standard which would be required to justify an order directing Rainey Collins to retire as solicitors for the Body Corporate, that the committee did reject Rainey Collins’ advice. Nor have Dr and Mrs Young produced any evidence at this stage that committee members may have acted in bad faith, sufficient to meet the standard which would be required to direct Rainey Collins that is not to act further for the Body Corporate.
[72] What is apparent from the minutes of the September 2015 AGM is that, by then, the committee had received advice from Rainey Collins to proceed to litigation. I repeat, I am not here concerned with whether that advice was good or bad: the only relevant point on the issue of alleged bad faith by committee members is that, on the face of it, they do appear to have received advice to go to litigation (that advice being recorded in the minutes of the September 2015 AGM).
[73] I have also addressed under issue 1 the question of whether the committee members acted in bad faith in declining Dr Young’s proposals for negotiation or mediation. Again, I do not consider there is a sufficient evidential basis at this stage for a finding of bad faith, such as would justify the serious step of directing Rainey Collins to stand aside. The legal advice received by the Body Corporate, through the committee members, is of course privileged, but it seems from the correspondence sent by Rainey Collins to the Youngs’ solicitors on 7 October 2015 that Rainey Collins was then of the view that it was a case of “pay now, argue later” for the Youngs, and that they had no arguable defence to the claim.
[74] I accordingly find for the Body Corporate on issue 2 – there is presently no sufficient evidential foundation for the contention that Rainey Collins’ independence has been compromised by any factual dispute as to whether committee members acted in bad faith in initiating the commencement of the proceeding.
Issue 3: Can Rainey Collins act for the Body Corporate in the absence of a valid resolution authorising the current litigation?
[75] For the Youngs, Mr Collins submits that earlier resolutions, including the resolutions made at the August 2014 AGM, are of doubtful utility, because it is apparent from the minutes of the December 2015 EGM that the Body Corporate had accepted that the earlier resolutions were ultra vires. There was no new resolution moved at the December 2015 EGM – there is only the minute recording Mr Holgate’s advice to the meeting that, as the matters regarding the Youngs’ outstanding balances had become legally complex, the committee had agreed to all matters being handled by Rainey Collins. That was not a resolution.
[76] Mr Collins relies on Body Corporate 198900 Limited v Bhana Investments Limited15 in support of the proposition that merely making budgetary provision for the preparation and prosecution of litigation does not sufficiently authorise a body corporate to commence that litigation. Regulation 17(1) of the Unit Titles Regulations 2011 provides that a body corporate may not enter into an obligation without the body corporate’s approval by ordinary resolution. Toogood J considered
that a resolution which does no more than set a budget would not, in general, be sufficient to meet the requirements of the regulation. Instructing solicitors to commence litigation on behalf of a body corporate amounts to the “entry into an obligation” by the body corporate, and so required an ordinary resolution.
[77] Mr Collins further submits that Mr Holgate’s advice to the December 2015
EGM suggests that the committee was purporting to further delegate its delegated duties to Rainey Collins. If that is in fact what occurred, the committee would have been acting beyond its powers: s 109(2) of the 2010 Act precludes a body corporate
committee from delegating any of its delegated duties or powers.
15 Body Corporate 198900 Limited v Bhana Investments Limited, above n 14.
[78] Mr Collins also submits that an issue arises as to whether Rainey Collins omitted to advise the Body Corporate of the foregoing legal requirements, and whether that failure to follow due process demonstrated bad faith on behalf of committee members.
[79] For the Body Corporate, Mr Knowsley submits that the litigation is authorised by the 2014 AGM resolution. He submits that the test for interpreting body corporate resolutions should be “whether, having regard to the full context in which body corporate resolutions occur, it can be safely concluded that the body corporate committed itself to the obligation under challenge”.16 The application of that test in the present case shows that the Body Corporate did authorise the present litigation.
[80] Finally, Mr Knowsley submits that the minute recording Mr Holgate’s advice to the December 2015 EGM does not provide any evidence of the committee unlawfully purporting to delegate its (already delegated) powers, to Rainey Collins.
Discussion and conclusions on issue 3
[81] I do not consider the issue over whether the earlier resolutions were ultra vires provides a sufficient basis at this stage for any order directing Rainey Collins to stand aside. First, it cannot be known what (privileged) advice Rainey Collins may have given to the Body Corporate (through the committee members) concerning the December 2015 EGM and the apparent attempt to “cure” what appears to have been perceived as an irregularity with the earlier resolutions.
[82] In the context of the representation application, I think the question is whether it is clear, to the point where the removal of Rainey Collins as solicitors for the Body Corporate would be justified, that the firm will in effect be defending its own advice in the proceeding, in circumstances where its independence would or
might be compromised.
16 Citing Body Corporate 198900 Limited v Bhana Investments Ltd, above n 14 at [80], referring to
Wheeldon v Body Corporate 342525 [2015] NZHC 884 at [170].
[83] Mr Knowsley relies on the August 2014 AGM resolution as the appropriate authority to the committee to initiate proceedings against the Youngs to recover the levies. I think the Body Corporate must rely on that resolution: I agree with Mr Collins that a resolution was required, and the reference in the minutes of the December 2015 EGM to the proposed proceedings against the Youngs was just that
— a reference in the minutes. It was not a resolution.
[84] As far as the evidence shows, Rainey Collins was not involved in drafting the resolution which was carried at the 2014 AGM. Although Mr Collins referred to Rainey Collins’ advice being referred to in the 2015 EGM minutes, there is no similar reference in the 2014 AGM minutes, and it appears that Rainey Collins was engaged after the 2014 AGM. (Their earliest invoice to the Body Corporate was issued two days after their letter of 24 November 2014, and the narration for work in that invoice does not refer to tasks regarding Body Corporate resolutions, unlike a later narration in an invoice issued after the 2015 EGM). There is accordingly no clear evidential foundation for any argument that Rainey Collins will be obliged in the proceeding to defend any advice given at the time about the drafting or effect of the resolution passed at the 2014 AGM.
[85] Did the alleged invalidity of the levies struck up to and including the August 2014 AGM “infect” the August 2014 resolution which the Body Corporate relies upon as the authority for the committee to commence a legal proceeding against the Youngs?
[86] I do not think it is reasonably arguable for the Youngs that any invalidity in the setting of the levies up to and including the 2014 AGM rendered invalid the resolution which I have found in issue 1 was arguably sufficient to authorise the issue of the proceeding. It is important to note that the resolution authorised the committee to proceed in two stages. First, the committee was to proceed with a legal review. Secondly, and depending on the result of that review, the committee was authorised to proceed to a court determination (if it could not resolve the matter outside litigation).
[87] The context of the resolution is important. It was preceded in the minutes by the text of a submission by Dr Young and another member, Mr Patel, which included the following:
…
2. The submission by my lawyer to the District Court is available to the Committee and should be made available to all members before they vote on this budget as the submission provides crucial information about the likelihood of success. The submission deserves serious consideration, for it was written by the partner of a leading law firm for a judge of the District Court. It cites legal precedents that make it very unlikely that a court would support the Body Corps position. Members should have the opportunity to read and assess the arguments and precedents for themselves before voting.
3. Members should be aware that a judge may hold the Body Corp liable for defendant’s legal costs if it brings a legal action that has no merit.
4. The Unit Titles Act 2010 paragraph 126 states that the costs of any action by the Body Corp that clearly benefits only a subgroup of the members cannot be charged to those who derive no benefit. (Incidentally, this was the legal basis for my refusal to contribute toward the cost of repairing the upper floor windows). So the costs of suing me cannot be charged to me or to any owners of a lower floor unit who declare that they support this stance, since they would clearly derive no benefit from the lawsuit. Members should be aware that the legal bills may well end up being shared only amongst the owners of the upper floors.
5. I request that Points 1–4 be included in the minutes.
[88] I think it is clear from that context that the resolution calling for a legal review was intended to operate quite independently of the question of whether or not the amounts charged to the Youngs had been validly levied. The resolution contemplated the possibility that a court might find that the levies were invalid — hence the “legal review” that was called for. Any potential invalidity of the actual levies does not taint the authorisation of Rainey Collins to proceed with the legal review and ultimately the proceeding.
[89] As I have found, Rainey Collins’ review did not end with its letter of
24 November 2014. Indeed, it seems likely that it did not end until some time after the December 2015 EGM, and before this proceeding was commenced. In the meantime, the August 2014 resolution appears to have remained in force.
[90] I conclude that the argument that the August 2014 resolution authorising the issue of the proceeding (subject to the legal review and the committee being unable to resolve the dispute outside litigation) was invalid because of possible invalidity of the levies charged to Dr and Mrs Young, does not provide a sufficient basis for the removal of Rainey Collins as solicitors for the Body Corporate.
[91] Mr Collins’ submission alleging unlawful delegation to Rainey Collins does not in my view reach the threshold where the firm could be required to retire from the case. The minutes of the December 2015 EGM recorded the committee’s agreement to “all matters being handled by the law firm Rainey Collins”, but it is by no means clear that that passage in the minutes provides evidence of any delegation of authority to Rainey Collins to decide matters which were properly for the Body Corporate to decide. It would be extraordinary if a long-established law firm were to accept instruction from a client on the basis that the law firm was to take substantial proceedings in litigation without reference to their client, and there is nothing to indicate that anything of that kind occurred in this case. It seems at least as likely that the reference in the EGM minutes to “all matters being handled” by Rainey Collins was a reference to the taking of formal steps in the proposed court proceeding and the actual conduct of any discussions or negotiations which might be had with Dr and Mrs Young or their advisers. I make no finding on the issue other than a finding that nothing in it requires a direction from the court that Rainey Collins withdraw from the case.
[92] It follows that I do not see any basis for the removal of Rainey Collins on the ground that it failed to advise the Body Corporate of legal requirements relating to the need for a resolution of the Body Corporate before the Youngs could be sued, or because of the prohibition on further delegation in s 109(2) of the 2010 Act.
[93] On those bases, I do not consider the Youngs have made out a sufficient evidential basis for Rainey Collins’ withdrawal under this head. I accordingly find for the Body Corporate on issue (3).
Issue 4: Is Rainey Collins in a compromised position due to earlier resolutions being ultra vires, resulting in an unresolved conflict between the committee and the Body Corporate?
The submissions of the parties
[94] Mr Collins submits that the agenda for the December 2015 EGM glossed over the true position, and was not sufficiently informative. He further submits that the decisions made by the Body Corporate at the EGM were made without full knowledge of the relevant facts (assuming that the information given to the meeting was limited to what was provided in the agenda). He refers to the absence of advice on dealing with a claim by the Youngs for an adjustment under s 126 of the 2010 Act (the minutes simply say that this was for future discussion). Nor was there any comment on the fact that Dr and Mrs Young had requested mediation, and how that request affected the August 2014 resolution which, on its face, called for negotiation.
[95] The agenda also failed to note that there was no reason why an adjustment to the levies could not now be considered, given that the work on levels three to eight was completed (or would shortly be completed).
[96] Mr Collins also submits that there should have been discussion on the recoverability or otherwise of already-incurred debt recovery expenditure. In particular, he submits that committee members, who had incurred previous expenditure under ultra vires resolutions, should have had independent legal advice. Further, no advice was given to members on ratifying this expenditure.
[97] Mr Collins submits that these matters showed that there existed a conflict between the Body Corporate and the committee members and no advice was given on that conflict. The committee could only exercise powers available to it under the
2010 Act, and spending money under resolutions that were later determined to be ultra vires must raise the question of whether the committee members are personally liable for that expenditure.17 That conflict would exist up to the point when the committee’s actions were ratified by the Body Corporate at an AGM or EGM. Until
the time of ratification, the interests of the Body Corporate and the committee members were not necessarily aligned.
[98] Mr Collins also submits that the Body Corporate appears never to have received information about costs incurred on its behalf. The 2016/2017 budget documents provided for the AGM on 22 September 2016 contained no budget allowance for legal costs for the 2016/2017 year. The budget figure for the
2015/2016 year was $29,900, but no figure was provided for actual expenditure against that budget figure. Dr and Mrs Young take the view that the failure to provide members with full information on the costs of the recovery action is evidence of bad faith on the part of the committee members, and supports the need for the Body Corporate to have new representation.
[99] Mr Collins submits that Rainey Collins will be unable to properly discharge its obligation to the Body Corporate and the court, in circumstances where it is very likely that a claim will be made against committee members for acting in bad faith, and where there were a number of procedural errors prior to this proceeding being issued.
[100] For the Body Corporate, Mr Knowsley distinguishes this case from Guardian Retail Holdings18 and says there is no relevant conflict of interest. He submits that the contention that the ultra vires nature of earlier Body Corporate resolutions gives rise to a conflict of interest between the Body Corporate and the committee is flawed. That would only be the case if the committee had taken decisions without a supporting Body Corporate resolution, but that did not occur. At all times the
committee was acting on resolutions of the Body Corporate. As to the issue of whether the earlier resolutions were ultra vires, that will be a matter to be dealt with at the hearing of the summary judgment application.
[101] On the Youngs’ contention that the decisions made at the December 2015
EGM were taken without full knowledge of certain matters, Mr Knowsley submits that the committee was under no obligation to include with the EGM agenda information regarding the various matters listed by Mr Collins in his submissions.
He submits that the committee was authorised to deal with these matters by the 2014
AGM resolution addressing the dispute with Dr and Mrs Young.
[102] Mr Knowsley further submits that the litigation costs incurred by the Body Corporate are authorised by the 2014 AGM resolution and later budgetary resolutions.
Discussions and conclusions on issue 4
[103] I accept Mr Knowsley’s submission that the Guardian Retail Holdings case is distinguishable. First, there was no valid resolution in that case authorising the body corporate’s intial participation in the litigation. Here, as I have found on issues 1 and
3, there arguably was.
[104] Secondly, committee members had been sued with the body corporate in Guardian Retail Holdings, and Buddle Findlay was acting for both the body corporate and the individual committee members when the relevant ratification resolution was passed. Steps had been taken by those committee members that were apparently unauthorised and invalid, and it is not surprising that Courtney J took the view that separate advice for the body corporate was required before there could be any effective ratification of the committee’s actions. That is quite different from the present case, where Rainey Collins’ client is the Body Corporate — as far as the evidence shows, it was never acting for individual committee members.
[105] Mr Collins submits that spending money under resolutions that are later determined to be ultra vires must raise the question of whether committee members are personally liable for that expenditure. He refers to Guardian Retail Holdings at para [24].
[106] I have already found that there is no sufficient evidential foundation for removing Rainey Collins as solicitors on the basis that the present proceeding was not sufficiently authorised. And if the challenge is to the validity of the levies, the setting of those levies were acts of the Body Corporate itself; they were not unauthorised acts of the committee, of the kind with which Courtney J was concerned in Guardian Retail Holdings. Courtney J referred at para [24] to
ultra vires acts of committee members giving rise to a right of action by the body corporate, or members of the body corporate, against the committee members. But if the resolutions setting the levies were invalid in this case, it is not easy to see (at least absent bad faith on their part) why committee members who faithfully executed the wishes of the Body Corporate, expressed through its members at the AGMs or EGMs, should be any more culpable than other, non-committee, members who voted in favour of the resolutions. At this stage I do not consider that there is a sufficient evidential foundation for any bad faith allegation against committee members, such as would justify an order removing Rainey Collins as solicitors.
[107] For those reasons I do not see that the possibility of the resolutions setting the levies being found to be ultra vires created a lack of alignment between the respective positions of the Body Corporate on the one hand and its committee members on the other, such as to create a conflict of interest for Rainey Collins in continuing to act for the Body Corporate in the proceeding against the Youngs.
[108] Mr Collins submits that the agenda for the 17 December 2015 EGM was deficient, in that it did not provide the members with sufficient information on a number of matters. I think that will be a matter for the summary judgment application. On the evidence that is presently available, it is not clear that Rainey Collins gave advice on the extent of the information that should be provided to members, and if it did, what qualifications it may have put on that advice. Removing a party’s solicitors in a proceeding is a serious step, and I am not satisfied that the Youngs have put forward a sufficient evidential foundation for any conclusion that Rainey Collins’ independence will be compromised because it will effectively be defending its own advice on the information provided to the meeting.
[109] Mr Collins refers to an arguable conflict between the Body Corporate on the one hand, and the committee members on the other, arising out of the allegedly unauthorised acts of the committee members in earlier pursuing the Youngs in the Tenancy Tribunal and in the District Court. I note first that Rainey Collins do not appear to have been acting for the Body Corporate at that point. Secondly, the members of the Body Corporate appear to have authorised the proceeding against the Youngs at the 2014 AGM, subject to the qualifications set out in the relevant
resolution. The minutes of that meeting clearly set out Dr Young’s view that “… the costs of suing me cannot be charged to me or to any owners of a lower floor unit who declare that they support this stance…”. Members were aware of the previous unsuccessful attempts to recover the levies from the Youngs.
[110] If the Body Corporate had some potential claim against committee members for unauthorised costs incurred in pursuing the Youngs in the Tenancy Tribunal and the District Court (something on which it is not necessary for me to decide), it seems at least arguable that the August 2014 AGM resolution either ratified the actions taken against the Youngs to that point,19 or that any claim the Body Corporate might still have against the committee members in respect of those actions was sufficiently separate and distinct from the issue of the present proceeding that it does not sufficiently raise any question over the propriety of Rainey Collins continuing to act.
[111] Mr Collins submits that there was a failure to provide Body Corporate members with budget information relating to the proceedings against the Youngs, and that that failure is indicative of bad faith on the part of the committee members, giving rise to a conflict of interest between them and the Body Corporate. I do not think any inadequacies in the information supplied (if there were any—that will be a question to be dealt with in the substantive proceeding) are sufficient to justify a direction that Rainey Collins stand aside. Members were well aware of the proposal to sue the Youngs for recovery of the levies by the time of the 2015 AGM and the December 2015 EGM, and how much the proposed proceeding would cost was an obvious question for all members. At least in the absence of evidence of deliberate concealment of the costs incurred (or the putting forward of an incorrect costs figure, as appears to have occurred in Guardian Retail Holdings), any insufficiency in the budget information supplied to members before the proceeding was issued does not in my view provide a sufficient evidential foundation for a finding of bad faith on the part of the committee, such as might have given rise to a conflict for Rainey Collins in continuing with its brief.
[112] For those reasons, I find for the Body Corporate on Issue (4).
19 A body corporate can ratify previously ultra vires resolutions—see Yee Good Fortune
Investments Ltd v Body Corporate 392619 [2017] NZHC 723 at [104].
Result
[113] The representation application is dismissed. The Body Corporate is entitled to costs, which I fix on a 2B basis, with disbursements to be fixed by the Registrar.
[114] The Registrar is directed to convene a telephone conference on the first practicable date after 3 July 2017, for the purposes of setting a date for the hearing of the summary judgment application (and giving such directions as may be necessary with regard to the hearing of that application).
Associate Judge Smith
Solicitors:
Rainey Collins, Wellington for the plaintiff
Gibson Sheat, Wellington for the defendants
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